Herman Mashaba. Picture: SUNDAY TIMES
Herman Mashaba. Picture: SUNDAY TIMES

Johannesburg mayor Herman Mashaba says R290m worth of city funds were placed at risk through unsecured lending to cash-strapped state arms firm Denel.

Mashaba said a report tabled before council on Thursday indicated that Gupta-linked associates‚ through Regiments Capital‚ had placed the funds at risk.

Explaining the background to the transaction in a statement‚ he said in 2013 and 2014‚ Denel had issued senior‚ unsecured notes with a maturity date of June 2018.

Regiments Capital‚ in its capacity as managers of the city’s sinking fund‚ purchased notes to the value of R290m for the fund. The city uses the sinking fund to pay back loans and investments made to it. These amount to more than R18bn.

Mashaba said in 2012‚ during the tenure of predecessor Parks Tau‚ Regiments Capital‚ an empowerment firm with links to the Guptas‚ was appointed to manage the sinking fund.

Early in June‚ the city was told by the department of public enterprises‚ in its capacity as the shareholder representative in Denel‚ that Denel was not in a position to settle the notes on the due date because the arms firm had serious liquidity problems.

After various meetings and the intervention of public enterprises minister Pravin Gordhan‚ the city agreed to roll over the investment. This was to prevent Denel from defaulting and give it time to implement a business-rescue strategy to improve its financial situation.

"On the basis of [Gordhan’s] request and in order to protect the city’s investment from capital loss‚ a decision was taken to roll over the investment for the requested period‚" Mashaba said.

The outstanding debt will now have to be settled on December 10.

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